CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: July 31, 1998
Commission File Number: 0-16304
OPTEK TECHNOLOGY, INC.
- --------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
75-1962405
- ---------------------------------------------------------------
(I.R.S. Employer Identification No.)
1215 WEST CROSBY ROAD CARROLLTON, TEXAS 75006
- ---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 323-2200
- ---------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X
-------- -----
Yes No
Number of common shares outstanding as of August 25, 1998:
7,712,607, par value $.01 per share
<PAGE>
OPTEK TECHNOLOGY, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Optek Technology, Inc. Consolidated Balance Sheets as of July 31,
1998 and October 31, 1997.
Optek Technology, Inc. Consolidated Statements of Income for the
Three Months Ended July 31, 1998 and August 1, 1997.
Optek Technology, Inc. Consolidated Statements of Income for the
Nine Months Ended July 31, 1998 and August 1, 1997.
Optek Technology, Inc. Consolidated Statements of Cash Flows for
the Nine Months Ended July 31, 1998 and August 1, 1997.
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
<PAGE>
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands except share and per share data)
<TABLE>
<CAPTION> July 31, 1998 October 31, 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $14,775 $ 9,815
Accounts receivable, net of
allowance for doubtful accounts
and customer returns of $1,741
in 1998 and $1,653 in 1997 7,477 9,196
Inventories (Note 2) 8,260 6,491
Deferred income taxes 2,113 2,113
Prepaid expenses 103 109
------ ------
Total current assets 32,728 27,724
Property, plant and equipment, net 14,417 11,135
Other assets 144 77
------- -------
$47,289 $38,936
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,979 $ 3,109
Accrued expenses 7,201 9,547
--------- --------
Total current liabilities 9,180 12,656
Other liabilities 152 117
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares;
none issued - -
Common stock, $.01 par value;
authorized 12,000,000 shares;
issued and outstanding
7,707,773 shares in 1998 and
4,554,159 shares in 1997 77 43
Additional paid-in-capital 16,379 13,963
Retained earnings 21,501 12,157
------ ------
Total stockholders' equity 37,957 26,163
------ ------
$47,289 $38,936
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION> THREE MONTHS ENDED
July 31, 1998 August 1, 1997
<S> <C> <C>
Net sales $20,494 $18,763
Costs and expenses:
Cost of sales 12,515 10,522
Product development expenses 374 215
Engineering expenses 1,150 990
Selling expenses 1,348 1,310
General and administrative
expenses 1,115 958
------ ------
Total costs and expenses 16,502 13,995
------ ------
Operating income 3,992 4,768
Other income, net:
Interest income (196) (54)
Other income, net (19) (14)
------ ------
Total other income, net (215) (68)
------ ------
Income before income taxes 4,207 4,836
Income tax expense 1,469 1,692
------ ------
Net income $ 2,738 $ 3,144
====== ======
Basic earnings per share (Note 4) $ 0.36 $ 0.75
====== ======
Shares used in computing basic
earnings per share 7,708 4,188
====== ======
Diluted earnings per share (Note 4) $ 0.34 $ 0.41
====== ======
Shares used in computing diluted
earnings per share 8,010 7,674
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION> NINE MONTHS ENDED
July 31, 1998 August 1, 1997
<S> <C> <C>
Net sales $64,005 $53,703
Costs and expenses:
Cost of sales 38,049 31,371
Product development expenses 946 875
Engineering expenses 3,625 2,977
Selling expenses 4,239 3,900
General and administrative
expenses 3,210 2,680
------- ------
Total costs and expenses 50,069 41,803
------ ------
Operating income 13,936 11,900
Other (income) expense, net:
Interest (income) expense, net (456) 27
Other expense 21 67
------ ------
Total other (income) expense,
net (435) 94
------ ------
Income before income taxes 14,371 11,806
Income tax expense 5,027 4,131
------ ------
Net income $ 9,344 $ 7,675
======= ======
Basic earnings per share (Note 4) $ 1.70 $ 1.84
======= ======
Shares used in computing basic
earnings per share 5,512 4,170
======= ======
Diluted earnings per share
(Note 4) $ 1.17 $ 1.01
====== ======
Shares used in computing diluted
earnings per shares 7,957 7,616
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION> NINE MONTHS ENDED
July 31, 1998 August 1, 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,344 $ 7,675
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,416 1,614
Gain on sale of property, plant
and equipment (6) (214)
Changes in assets and liabilities:
Accounts receivable 1,719 353
Inventories (1,769) (403)
Prepaid expenses and other
assets (61) 56
Accounts payable, accrued
expenses and other
liabilities (3,441) 288
------- -------
Net cash provided by
operating activities 7,202 9,369
Cash flows from investing activities:
Purchase of property, plant and
equipment (4,698) (706)
Proceeds from sale of property,
plant and equipment 6 214
------- -------
Net cash used in
investing activities (4,692) (492)
Cash flows from financing activities:
Net repayment of long-term bank debt - (3,427)
Net proceeds from exercise of stock
options and warrants 2,450 336
------- -------
Net cash provided by
(used in) financing
activities 2,450 (3,091)
Net increase in cash and cash
equivalents 4,960 5,786
Cash and cash equivalents at
beginning of period 9,815 121
------- -------
Cash and cash equivalents at
end of period $14,775 $ 5,907
======= =======
Interest payments $ - $ 154
====== =======
Income tax payments $5,680 $ 3,308
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998
NOTE 1 The consolidated financial statements of Optek
Technology, Inc. (the "Company") are unaudited and
reflect all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
periods. These consolidated financial statements should
be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended October 31, 1997. The
results of operations for the three months and nine
months ended July 31, 1998 are not necessarily indicative of the
results for the entire year ending October 30, 1998.
NOTE 2 The components of inventories, in thousands of dollars,
are as follows:
<TABLE>
<CAPTION> July 31, 1998 October 31, 1997
<S> <C> <C>
Finished goods $ 2,250 $ 1,503
Work-in-process 4,059 4,003
Raw materials 4,246 3,140
Reserves for excess and obsolete
inventory (2,295) (2,155)
------ -------
$ 8,260 $ 6,491
====== ======
</TABLE>
NOTE 3 The registrant has no material pending legal
proceedings.
NOTE 4 On November 1, 1997 the Company adopted Financial
Accounting Standards Statement No. 128, "Earnings per Share."
All share and per share amounts, including those of the prior
year, have been restated to comply with the new provisions.
Shares used in calculating basic and diluted earnings per share
for the three months ended July 31, 1998 and August 1, 1997 are
as follows:
<TABLE>
<CAPTION> July 31, 1998 August 1, 1997
<S> <C> <C>
Weighted average common shares
outstanding used in computing
basic earnings per share 7,708 4,188
Warrants to purchase common shares
held by First Source Financial, LLP - 3,150
Other warrants to purchase common
shares - 196
Common stock options 499 673
Assumed repurchase of common shares (197) (533)
------ ------
Shares used in computing diluted
earnings per share 8,010 7,674
====== ======
</TABLE>
<PAGE>
FORM 10-Q
PART I
Shares used in calculating basic and diluted earnings per
share for the nine months ended July 31, 1998 and August 1, 1997
are as follows:
<TABLE>
<CAPTION> July 31, 1998 August 1, 1997
<S> <C> <C>
Weighted average common shares
outstanding used in computing
basic earnings per share 5,512 4,170
Warrants to purchase common shares
held by First Source Financial,
LLP 2,100 3,150
Other warrants to purchase common
shares 59 195
Common stock options 537 574
Assumed repurchase of common shares (251) (473)
------ ------
Shares used in computing diluted
earnings per share 7,957 7,616
===== ======
</TABLE>
NOTE 5 Other notes have been omitted pursuant to Rule 10-01
(a) (5) of Regulation S-X.
<PAGE>
FORM 10-Q
PART 1
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Three Months Ended July 31, 1998 Compared to Three Months Ended
August 1, 1997
Net sales for the three months ended July 31, 1998 were
$20.5 million, up $1.7 million or 9%, compared to net sales of
$18.8 million for the three months ended August 1, 1997. The
increase was primarily the result of higher net sales volume of
commercial products sold primarily to office and industrial
equipment manufacturers. Net sales of commercial products were
up approximately 20% over the prior year. Net sales of automotive
products during the three months ended July 31, 1998 were
essentially flat compared to the prior year due to the impact of
the recent GM strike.
Gross profit for the three months ended July 31, 1998 was
$8.0 million, or 38.9% of net sales, compared to $8.2
million, or 43.9% of net sales, in the comparable period of
fiscal 1997. The GM strike had a significant adverse impact on
anticipated net sales and absorption of overhead maintained to
support those anticipated sales, which combined to produce
the lower gross profit. In addition, the Company has commenced
expenditures to increase manufacturing capacity in anticipation of
additional potential net sales.
Product development and engineering expenses during the
three months ended July 31, 1998 were $1.5 million, or
7.4% of net sales, compared to $1.2 million, or 6.4% of net
sales, during the comparable period of the prior fiscal year.
Expenses in absolute dollars were up slightly from the prior year
and were up as a percentage of net sales due primarily to
net sales being less than anticipated as a result of the GM
strike. These expenses were primarily related to the development
of new products and processes as well as ongoing engineering
support. The Company anticipates expenditures to increase from
fiscal 1997 to fiscal 1998 in order to support new product
development and expand ongoing engineering support.
Selling, general and administrative expenses during the
three months ended July 31, 1998 were $2.5 million, or
12.0% of net sales, compared to $2.3 million, or 12.1% of net
sales, in the three months ended August 1, 1997.
Operating income for the three months ended July 31, 1998
was $4.0 million, or 19.5% of net sales, versus $4.8 million, or
25.4% of net sales, during the comparable period of fiscal 1997.
The decrease in operating income resulted from the factors
discussed above. The Company's expense levels are based,
in part, on its expectations as to future net sales and to some
extent are fixed in the short term. Accordingly, the Company may
be unable to adjust spending in a timely manner to compensate for
an unexpected failure of revenues to reach anticipated levels,
such as the recent GM strike. Any significant shortfall of demand
in relation to the Company's expectations or any material delay
or deferral of customer orders could have a material adverse
effect on the Company's business, operating results and financial
condition. The Company has commenced expenditures to increase
manufacturing capacity and engineering resources in anticipation
of additional potential net sales. In the event that such
additional net sales do not materialize when and as anticipated,
such expenditures could adversely affect the Company's future
gross margins and operating margins.
Other income consisted primarily of net interest income of
$196,000 in the three months ended July 31, 1998 compared to net
interest income of $54,000 in the comparable period of fiscal
1997.
Income tax expense for the three months ended July 31, 1998
was $1.5 million, or 7.2% of net sales, compared to $1.7 million,
or 9.0% of net sales, in the same period of fiscal 1997. The
effective tax rate for both periods was 35%.
As a result of the factors discussed above, net income for
the three months ended July 31, 1998 was $2.7 million, or 13.4%
of net sales, compared to $3.1 million, or 16.8% of net sales, in
the comparable period of fiscal 1997.
First Nine months Ended July 31, 1998 Compared to First Nine
months Ended August 1, 1997
During the first nine months of fiscal 1998, net sales were
$64.0 million, up $10.3 million or 19%, compared to net sales of
$53.7 million for the first nine months of fiscal 1997. The
increase was primarily attributed to higher net sales volume
in automotive products, up 56%, resulting primarily from sales of
sensor assemblies for use in a theft deterrent system on model
year 1998 trucks and sport utility vehicles. Also contributing to
the increase in net sales were commercial products, primarily
office and industrial equipment markets, which were up 11% over
the prior year. The automotive industry, which accounted for
approximately 30% of the Company's net sales during the first
nine months of 1998, has in recent years represented the fastest
area of growth for the Company. The Company's growth rate has
been more significantly impacted by the addition of new programs
than growth in existing programs. Therefore, the Company's
quarter-to-quarter and year-to-year growth rates depend largely
upon the number, size and timing of new program additions.
Gross profit in the first nine months of fiscal 1998 was
$26.0 million, or 40.6% of net sales, compared to $22.3
million, or 41.6% of net sales, in the comparable period of
fiscal 1997. The increase in absolute dollars was primarily the
result of the higher net sales volume in automotive and
commercial products. The decrease in gross profit as a percentage
of net sales was due primarily to the adverse impact of the GM
strike and its effect on anticipated net sales and absorption of
fixed cost associated therewith. In addition, the Company has
commenced expenditures to increase manufacturing capacity in anticipation
of additional potential net sales.
Product development and engineering expenses during the
first nine months of fiscal 1998 were $4.6 million, or
7.1% of net sales, compared to $3.9 million, or 7.2% of net
sales, during the comparable period of the prior fiscal year.
Although expenses in absolute dollars were up from the prior
year, they are down as a percentage of net sales even after
consideration of the GM strike impact on net sales. These
expenses were primarily related to the development of new
products and processes as well as ongoing engineering support.
The Company anticipates expenditures to increase from fiscal 1997
to fiscal 1998 in order to support new product development and
expand ongoing engineering support.
Selling, general and administrative expenses during the
first nine months of fiscal 1998 were $7.4 million, or
11.6% of net sales, compared to $6.6 million, or 12.3% of net
sales, in the first nine months of fiscal 1997. Expenses in
absolute dollars were up from the prior year due primarily to
sales commissions from increased net sales. Expenses as a
percentage of net sales were down due to net sales increasing at
a higher rate than expenses during the period even after
consideration of the GM strike impact on net sales.
Operating income for the first nine months of fiscal 1998
was $13.9 million, or 21.8% of net sales, versus $11.9
million, or 22.2% of net sales, during the comparable period of
fiscal 1997. The increase in operating income resulted from the
factors discussed above. The Company's expense levels are based,
in part, on its expectations as to future net sales and to some
extent are fixed in the short term. Accordingly, the Company may
be unable to adjust spending in a timely manner to compensate for
an unexpected shortfall in revenues, such as the GM strike. Any
significant shortfall of demand in relation to the Company's
expectations or any material delay or deferral of customer orders
could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has
commenced expenditures to increase manufacturing capacity and
engineering resources in anticipation of additional potential net
sales. In the event that such additional net sales do not
materialize when and as anticipated, such expenditures could
adversely affect the Company's gross margins and operating
margins.
Other (income) expense consisted primarily of net interest
income of $456,000 during the first nine months of fiscal 1998
compared to net interest expense of $27,000 during the comparable
period of fiscal 1997. The Company repaid the remaining balance
of long-term debt during the second quarter of fiscal 1997 and
has earned interest income on accumulated cash balances since
that time.
Income tax expense for the first nine months of fiscal 1998
was $5.0 million, or 7.9% of net sales, compared to $4.1 million,
or 7.7% of net sales, in the same period of fiscal 1997. The
increase in tax expense for the period was attributable to
higher income. The effective tax rate for both periods was 35%.
As a result of the factors discussed above, net income for
the first nine months of fiscal 1998 was $9.3 million, or
14.6% of net sales, compared to $7.7 million, or 14.3% of net
sales, in the first nine months of fiscal 1997.
Liquidity and Capital Resources
The Company generated approximately $7.2 million in cash
from operations during the first nine months of fiscal
1998. The largest use of operating cash flows was the purchase
of manufacturing equipment in the amount of $4.7 million. At the
end of the first nine months of fiscal 1998, the Company's
working capital was $ 23.5 million, including $14.8 million of
cash and cash equivalents.
The Company anticipates that additional manufacturing
capacity, primarily in Mexico, will be required to support
growth over the next several years. Therefore, capital
expenditures are planned at a total of approximately $10 to $15
million to be expended over the next two to three fiscal years
(including fiscal year 1998) to support anticipated future growth
in demand for the Company's products. The timing and amount of
such expenditures is subject to adjustment based upon continued
evaluation by management. The Company anticipates purchasing
during the fourth quarter for $1.8 million the facility which it
currently leases in Juarez, Mexico.
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from NationsBank NA. Borrowings
under this facility bear interest, at the option of the Company,
either at (i) a LIBOR-based rate plus a margin ranging from 1.00%
per annum to 1.50% per annum, depending upon the Company's ratio
of indebtedness to operating income, or (ii) a base rate equal to
a reference rate plus a margin ranging from -1.00% to 0%,
depending upon the Company's ratio of indebtedness to operating
income. This facility contains customary covenants that, among
other things: require the maintenance of certain financial
ratios relating to fixed charges and interest coverage and debt
and equity amounts; require the maintenance of certain net worth
levels; restrict liens on Company and subsidiary assets; and
limit the payment of cash dividends.
The Company anticipates that it will generate sufficient
cash flows from operations to meet its obligations, including
capital requirements, for the next 12 months. However, an
unanticipated expansion or contraction of its business or future
acquisitions may require the Company to draw upon its existing
credit line or obtain other financing.
During the three months ended July 31, 1998, the Company's
former lender, First Source Financial (First Source), exercised
warrants to purchase 3,150,000 shares of the Company's common
stock. The Company assisted First Source with the sale
of 2,500,000 of those shares at a price of $22.50 in an offering
underwritten by Prudential Securities Incorporated, BancAmerica
Robertson Stephens and ABN AMRO, Incorporated. The Company did
not receive any proceeds from the sale of common shares by
First Source, but did receive the aggregate exercise price of
$1.58 million upon exercise of the 3,150,000 warrants less
offering costs.
Statements contained in this quarterly report on Form 10-Q
that are not historical facts are forward looking and therefore
include risks and uncertainties. Significant factors that may
affect results are described in the Company's other public
filings.
Recent Accounting Pronouncements
Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," was
issued in March 1998 and is effective for fiscal years beginning
after December 15, 1998. The SOP requires that certain costs
related to the development or purchase of internal-use software
be capitalized and amortized over the estimated useful life of
the software. The SOP also requires that costs related to the
preliminary project stage and post-implementation operations
stage of an internal-use computer software development be
expensed as incurred. The Company does not expect the adoption
of the SOP to have a significant impact on the Company's
financial position or results of operations.
Impact Of The Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that
have date-sensitive software may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities.
The Company is committed to a successful and timely Year 2000
conversion and funds are dedicated and available for this
project. The Company anticipates maintaining its centralized
hardware platform, but replacing or upgrading most of the
software. In addition, all PCs, HVAC, test and production equipment and
external providers will be reviewed and acted on accordingly.
Although the Company has only recently initiated its Year 2000
compliance program, the Company anticipates that it will be fully
Year 2000 compliant by April 30, 1999.
<PAGE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K.
None.
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be
signed on behalf of the undersigned thereunto duly authorized.
Optek Technology, Inc.
Date: September 14, 1998 By: /s/ Thomas R. Filesi
----------------------------------
Thomas R. Filesi
Chairman and CEO
(Principal Executive Officer)
Date: September 14, 1998 By: /s/ William J.Collinsworth
----------------------------------
William J. Collinsworth
Vice President - Finance and CFO
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-Q for the quarter ended July 31, 1998 and is
qualified in its entirety by reference to such financial statement.
All numbers are in thousands, except per share amounts.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-END> JUL-31-1998
<CASH> 14775
<SECURITIES> 0
<RECEIVABLES> 9218
<ALLOWANCES> 1741
<INVENTORY> 8260
<CURRENT-ASSETS> 32728
<PP&E> 36486
<DEPRECIATION> 22069
<TOTAL-ASSETS> 47289
<CURRENT-LIABILITIES> 9180
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47289
<SALES> 64005
<TOTAL-REVENUES> 64005
<CGS> 38049
<TOTAL-COSTS> 50069
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (456)
<INCOME-PRETAX> 14371
<INCOME-TAX> 5027
<INCOME-CONTINUING> 9344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9344
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.17
</TABLE>
